A year after its launch on October 22, 2009, Windows 7 has surpassed Windows Vista in market share, 17% to 13%. But it still lags behind Windows XP, which commands 60% of the market, according to NetMarketShare.

There are several reasons for this. Many companies skipped the widely criticised Windows Vista and therefore kept most of their PCs on the trusted Windows XP. But with the economic recovery seemingly taking hold and businesses having delayed major upgrades during the recession, some IT shops now have the cash to spend on new IT projects.

A Symantec whitepaper cutely entitled 7 Steps to Windows 7 predicts that Microsoft’s latest operating system will become the preferred business platform because of its productivity features, security enhancements and connectivity improvements.

Migrating to the operating system, however, does not come cheap and is not without risks, which might explain why Windows 7’s market share is still small. According to Gartner, a technology research group, the need to migrate from Microsoft Windows XP and Windows 2000 to Windows 7 in a tight time frame will create an extra budgetary and resource burden on companies from 2011 to 2012.

During that period, demand for highly qualified Windows 7 migration IT personnel will exceed supply, for example, leading to higher service rates. Most organisations will need to find extra funds or redirect budgets away from other IT projects to complete the Windows migration on time.

Most corporate IT departments also prefer to migrate PC operating systems via hardware attrition, notes Charles Smulders, managing vice president at Gartner. That means bringing in Windows 7 as companies replace hardware as part of the normal refresh cycle, which is a more expensive undertaking than simply changing the software in existing machines.

The problem is that PC hardware replacement cycles typically run at four to five years, and Microsoft will support Windows XP for just four more years. With most migrations not starting until the fourth quarter of 2010 at the earliest, says Smulders, “most organisations will not be able to migrate to Windows 7 through usual planned hardware refresh before support for Windows XP ends.”

Three options

If your company faces this dilemma, you have three alternative courses of action: accelerate replacement, upgrade installed PCs or undertake partial migration.

1.Accelerate PC Replacement Plans. Assuming a company has 10,000 PCs that will be replaced, Gartner estimates that the migration cost per PC will be between US$1,205 and US$1,999, depending on how well-managed the environment is. While the overall cost to migrate is lower than other scenarios, the downside is that capital costs account for about 60% of the total replacement cost, so the capital budget will be larger than in the upgrade case.

2.Upgrade Installed PCs. Using existing PCs will reduce the capital costs of migration, but will not reduce the associated labour costs. Assuming the same set-up – a 10,000 PC- environment, where all PCs are upgraded – the migration cost per computer will be between US$1,274 and US$2,069, depending on how well-managed the PC environment is, says Gartner. This assumes that 25% of the machines will need a hardware upgrade to run Windows 7.

While the capital costs are reduced in this case, upgrading an installed PC simply postpones the inevitable replacement for two to three years. Users will need to be migrated twice, rather than once, during a four-year period.

3.Partial Migration. For task workers, such as data-entry roles (these account for about 15% of the population in a typical organisation), migrating from a PC to a hosted virtual desktop (HVD) environment is an alternative to PC migration. It would potentially speed up deployment, because it is one image deployed centrally. However, an HVD does not solve the budget issues because of the incremental cost of the data centre and the network infrastructure needed to run an HVD. Also, it does not solve the IT support staff issue, since IT staff will also be involved in the HVD rollout.

Start negotiating now

"Whether replacing or upgrading PCs, it is clear that Windows 7 migration will have a noticeable impact on organisations' IT budgets," says Steve Kleynhans, research vice president at Gartner. "Based on an accelerated upgrade, we expect that the proportion of the budget spent on PCs will need to increase between 20% as a best-case scenario and 60% at worst in 2011 and 2012. Assuming that PCs account for 15% of a typical IT budget, this means that this percentage will increase to 18% (best case) and 24% (worst case), which could have a profound effect on IT spending and on funding for associated projects during both those years."

Gartner expects the cost of IT labour to increase during 2011 and 2012 as demand for Windows 7 migration services spikes. These cost hikes are likely to continue in 2013, as organisations recognise that they are behind in their migrations.

“Begin talks with suppliers now about putting in place contracts that can deliver flexible levels of resources at a fixed rate over the migration period,” advises Smulders.

Apart from the high cost of the migration process itself, legacy applications that do not run on Windows 7 remain the primary stumbling block for many organisations. Desktop virtualisation tools that run them in Virtual Windows can help, as can proper testing tools that iron out hardware or application incompatibility issues before wholesale implementation of the new OS.

“Application compatibility is the one thing that stops people from rushing out and starting to upgrade, but it is the same whenever there is a significant change to any OS,” says Kleynhans. “Apps specifically written for Internet Explorer 6 and those that use ActiveX controls are the most problematic, but there are other reasons why you should be working to get rid of those anyway, even without Windows 7.”

Big returns?

While Gartner says that upgrading to Windows 7 isn’t cheap, a Microsoft-commissioned TEI (total economic impact) study conducted by Forrester asserts that Windows 7 can provide big return on investment over time – roughly a 129% ROI over three years, with a break-even point of 13 months after migration. A separate study conducted by IDC finds the return on the investment to deploy Windows 7 can be recognised quickly — in fact, in as little as 7.2 months, which produces a 375% return on investment needed to deploy Windows 7.

For its study, Forrester culled data from the 12 companies to create a fictional composite enterprise and demonstrate the costs, benefits and risks of implementing Windows 7. This composite company generates US$1 billion in annual revenue with several locations around the globe; has 5,000 employees who travel frequently; has a mix of Windows XP and Vista in place prior to deployment; uses a three-year workstation refresh cycle; and has a 35/65 desktop/laptop ratio.

For the composite company, Forrester estimates that the total cost of Windows 7 deployments for initial pilot testing and the first three years of running the OS is US$689,727. This amount includes management of pilot testing, application testing, PC deployment, end-user training (this is the highest cost at US$340,000 over three years); hardware costs; and the IT labour expenses around Windows Server 2008 R2.

But over the same three years, Forrester's composite company will ultimately save approximately US$2,124,299. Deducting the US$689,727 spent, the project will return US$1.4 million.

In interviews with the 12 Microsoft customers, Forrester identified the following savings from their implementation of Windows 7 over three years:

US$275,805 in PC build and deployment savings

US$250,000 from fewer help desk calls

US$408,000 in savings from increased PC reliability for mobile and remote workers.

US$239,400 in improved protection of a company's intellectual property through encryption

US$147,000 in total PC power savings at US$30 to US$60 in savings per machine

US$78,000 in IT management savings through the Windows 7’s DirectAccess feature, which eliminates VPNs and lets IT engineers manage PCs of remote workers as easily as they can those at corporate headquarters

US$180,000 in bandwidth upgrade cost savings through BranchCache, which in conjunction with Windows Server 2008 R2 speeds up access to remote files for workers in branch offices by caching a copy of files locally. Forrester estimates this will save the composite company US$30,000 per branch office per year in bandwidth upgrade fees

For its part, the IDC survey estimates that service-desk labour will fall by 65%, from 5.3 hours per PC per year to 1.9 hours per PC per year. Similarly, PC/OS support hours will decline by 55%, from 4.8 hours per PC per year to 2.2 hours per PC per year. These estimates apply to companies that replace the previous operating system (typically Windows XP, but in some cases, Windows Vista) with Windows 7.

Decision time

What does all this mean to the CFO? If your company is among the 60% of users still on Windows XP or the 13% on Vista, decision time is looming on how to migrate to Windows 7. There is no question most companies will eventually need to migrate as technical support for the older operating systems are discontinued.

Moreover, there is the issue of competitiveness. In a recessionary environment, companies running Windows XP were perhaps able to manage since business was slow anyway and the focus was on preserving cash. But growth has now resumed, particularly in Asia, and so has competition for customers and shareholder demands for improved margins. The touted productivity and efficiency of Windows 7 can potentially help the business’s efficiency. More practically, a Windows 7 environment may be required if new enterprise software like business intelligence, financial management, enterprise performance management and the like are to be deployed.

But as Grant Ho, director of marketing at Novell, points out, for any organisation to migrate successfully to Windows 7 and reap the benefits, it needs to have the right parts in place. “Any operating system upgrade can be disruptive. It takes time and careful planning, and it can deplete IT resources and drain employee productivity if not done correctly. But it doesn't have to, especially if you are armed with the right set of tools,” Ho writes in a column for NetworkWorld.

The tools Ho is referring to are asset management, configuration management and application virtualisation technologies. According to Ho, these solutions not only let you create and automatically deploy Windows 7 images to your target, but they also ensure that all the correct hardware drivers and applications specific to the user are automatically installed, further lowering the cost of migration.

Application and desktop virtualisation also offers an effective path to migration for companies struggling with the complexities and costs of upgrading an OS and testing for app compatibility. Now more than ever, the CFO needs to work closely with the CIO and the IT department on how the company can migrate seamlessly to Windows 7 in the most cost-effective way.